Thursday, January 25, 2007

Is Secondlife a scam?

I don't get the "buzz" about Secondlife.I can see the value & attraction in extending your network through the variety of online communities however I think that interacting with other people through the medium of an online virtual world populated of badly rendered versions of people's dream-persona is just plain sad. Apparently there are people who spend days wandering around this environment and become absolutely addicted to it. They create detailed characters (avatars), interacts with other inhabbitants, build homes, businesses, towns and even cities.They date, have intercourse and get married.To all those people I have only one thing to say: GET A LIFE!There's a whole real world right outside your frontdoor full of real people that are rendered in a much higher definition, have an superior GUI and who also have nams that don't sound like they're straight out of some 70's German existentialist movie.And the intercourse is better in the real world too!

On top of that there is a rumour going around that you can make money on SecondLife. This has spawned a whole herd of would be internet-entepreneurs that cannot cut it in real life. Apparently you can set up shop in this virtual environment and flog your wares. Other inhabitants pay you in "Linden-dollars". People are filling their (virtual) pockets with these Linden-dollars. But the last time I checked Linden-dollars weren't a recognised currency on the international Foreign exchange markets. So in order to get some kind of tangible revenue out of you SecondLife business you need to be able to withdraw and exchange that money.And that's where the problem lies.Randolph Harrison has a very informative and insightfull article on his blog.It basically shows that the way Secondlife operates is very much like a pyramid scheme.I suggest that you read the article but I will give you a few quotes as a taster:

Multiply all these micropayments among Linden’s claim of millions of customers, tens of thousands of which are online at any given time, and SecondLife supposedly represents a very real economy generating hundreds of thousands of real dollars of commerce, daily. Linden self reports an astonishing L$314,101,463 were earned in December 2006. That’s $1,163,338 USD of value by Linden’s average “exchange rate” of SLL/USD. But more about exchange rates later.

I discovered that the interest rates being paid by these banks, when calculate by interest-rate-parity against the USD, were mispriced allowing for a whopping 2,786.32% return arbitrage opportunity. Over some months we sunk the better part of $10,000 USD into SecondLife, borrowing from banks, lending to banks, and entering into various types of virtual financial arrangements with virtual businesses.

Put simply, you can seldom trust those with whom you’re doing business in SecondLife. Even supposedly well established, well regarded business citizens are prone to defaulting on any obligations which prove inconvenient. Whole banks will disappear over night, along with your L$ balance. Private businesses will simply refuse to make good on financial contracts. And individuals, pretty much all of whose real world identities are carefully guarded anonymous secrets, sometimes even will openly default, without recourse.

This game was just a pyramid scheme.SecondLife is not a dramatic taste of our future, in which markets are virtual, currency is free from government control, taxes are non-existent, and normal people can become real millionaires simply by clicking their mouse a few times.SecondLife isn’t even a simple virtual economy, with legitimate buying and selling, and opportunity for those who would compete.No, SecondLife is a classic pyramid scheme. Or, more of an Amway-like pyramid: partially legitimate, partially ponzi. Sure, there are plenty of legitimate SecondLife customers who just like to go there to get their kicks, spend a couple dollars, and be on their way.

2 comments:

Anonymous
said...

Well put. Additionally schemes within schemes- serious corporations like AOL are opening sites there and risking controversy - with problematic consequences when their payouts turn out to be duds because the payouts don't get to the winners and even if they did, the currency doesn't really float

Secondlife is a scam. I had some $11 US in my account which I requested SL to transfer to my Paypal account. The payment never happened.When I went to SL web site to ask them for a reason why the payment did not appear into my Paypal account, the email was resent to me with no answer.